What must be provided to borrowers if a loan includes a prepayment penalty?

When a loan includes a prepayment penalty, it is essential for borrowers to receive a written special disclosure. This requirement ensures that borrowers are fully informed about the terms of the loan, specifically regarding the conditions under which they may incur penalties for paying off their mortgage early. The written disclosure serves as an official document that outlines the details of the prepayment penalty, including when it applies, how much it may cost, and any potential impact on the borrower's ability to refinance or sell the property.

Providing this information in writing is crucial because it protects consumers by ensuring they have clear and accessible documentation of their obligations and rights associated with the loan. An oral explanation, while helpful, does not provide the same level of clarity and permanence that a written document offers. Likewise, a detailed financial report or a pamphlet about penalties would not meet the legal requirements for transparency regarding prepayment penalties.